The Notice of Observation Treatment and Implication for Care Eligibility (NOTICE) Act requiring written notification to Medicare patients of observation services became law on Aug. 6, 2015, and implementation is required by Aug. 6, 2016. While many states had already beaten the Centers for Medicare & Medicaid Services (CMS) to the punch by enacting their own laws, as described in a prior RACmonitor article, it was not until CMS released the 2017 Inpatient Prospective Payment System (IPPS) proposed rule that we got a taste of its plans. In the proposed rule, the agency introduced the MOON, the Medicare Outpatient Observation Notice, which is the required form to be given to all patients who receive 24 or more hours of observation services. 

Others have addressed the form and some of its shortcomings, of which there are a few, including the requirement to provide the MOON to Medicare Advantage patients, but I will focus my critique on two aspects in particular: the self-administered drug costs and the patient copayments. Self-administered drugs are drugs the patient would normally take on their own, with the exception of normally self-administered drugs required for the hospital outpatient services the patient is receiving. This includes medication such as eye drops prior to eye surgery, an oral sedative prior to a procedure, or an anti-platelet agent prior to a coronary procedure.

In the MOON, CMS describes the “self-administered drug” costs, noting that they are not covered by Part B and that the patient will likely have to pay out of pocket for these drugs and submit a claim to their Part D drug plan for a refund. These self-administered drug costs are a sore spot for most. Because of the arcane and confusing way hospitals bill for their services, the charges applied to these medications are greatly inflated compared to the actual acquisition and dispensing costs. But because that is the chargemaster price, that is the price hospitals are forced to charge to all patients and payors.

Some hospitals adopted a policy of allowing patients to bring their own medications from home, but when that happens, each medication must be checked by a pharmacist with the pill explicitly identified (an expensive, herculean task, considering the proliferation of generic manufacturers and lack of standardization of pill shapes, sizes, colors, or markings, which takes a pharmacist away from actual meaningful work). Then the medication had to be packaged and stored for administration by the nurse. At discharge, the medication must then be returned to the patient, adding another costly step. 

An exception to the “no medications from home” policy may be used for costly or specialized medications, such as Harvoni, the $1,000-a-pill medication used to treat hepatitis C; in this case, the pharmacist’s time provides an excellent return on investment. Few hospitals allow patients to keep their own medications and actually self-administer them, eliminating the need for a pharmacist to check, but the safety issues associated with such a policy should be evident to all – and this should be discouraged. 

As noted by CMS, if a patient pays for his or her medication, they can submit the claim to their Part D plan, but it does not take much imagination to realize that obtaining reimbursement for such a cost would likely result in far more frustration and anger than simply receiving an immediate payment. The Part D provider would first question why the patient did not go to the local pharmacy and then why they did not take the preferred medication, and then question the cost, at which point many patients would give up.

Fortunately, there is a simple solution. Hospitals should waive the cost of all self-administered medications for Medicare outpatients receiving hospital services. CMS had previously noted that “neither the OPPS nor other Medicare payment rules regulate the provision or billing by hospitals of non-covered drugs to Medicare beneficiaries. However, a hospital’s decision not to bill the beneficiary for non-covered drugs potentially implicates other statutory and regulatory provisions, including the prohibition on inducements to beneficiaries, section 128A(a)(5) of the Act, or the anti-kickback statute, section 1128B(b) of the Act.” 

Whenever CMS even mentions kickbacks, hospitals stop considering the issue. But the Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) came to the rescue on Oct. 29, 2015, issuing the “OIG Policy Statement Regarding Hospitals that Discount or Waive Amounts Owed by Medicare Beneficiaries for Self-Administered Drugs Dispensed in Outpatient Settings.” 

In this three-page memo, the OIG lays out some simple requirements to waive these costs: establish a policy, apply it uniformly, don’t advertise it, and don’t claim the costs as bad debt. Imagine the public relations coup when outpatients see the cost of their medications listed as $0 on their bill. Their faith in the medical establishment may just be restored.

On the other hand, the MOON explanation of the other out-of-pocket costs of observation services makes no sense. It should be noted that the MOON is only given to patients receiving observation services, and not to patients having outpatient surgery – not even for those surgeries that involve an overnight stay. On the proposed MOON, CMS notes that the patient may pay “a copayment for each individual outpatient hospital service that you get.” 

Granted, they did preface this statement with “in general,” but it totally ignores the fact that as of Jan. 1, 2016, CMS created the Comprehensive Ambulatory Payment Classification (C-APC) 8011, creating a single payment for most outpatient stays for which observation services lasting more than eight hours were provided. Because of that, most patients who receive the MOON will have to pay a single copayment that encompasses all services received during their outpatient stay, and not a copayment for each service. The one major exception is the patient who has at least one procedure that has a status indicator of T, in which case the C-APC for observation is not paid at all and the claim reverts to a “per-service” claim.

CMS also indicates that the patient must pay “20 percent of (the) Medicare-approved amount for most doctor services.” This statement has no place on the MOON. Physician services are always paid separately, whether the stay is Part A or Part B, so including it here can only cause confusion. But it does lead one to ask why CMS felt compelled to indicate “20 percent of the Medicare-approved amount” here and not in the description of the copayment for the services received when those copayments, in general, also represent 20 percent of the Medicare-approved amount. 

The comment period for the rule is open until June 17, so there is still time to provide CMS your input on the MOON and their guidelines for its use. You can post comments here.

About the Author


Ronald Hirsch, MD, FACP, CHCQM, is vice president of the Regulations and Education Group at Accretive Physician Advisory Services at Accretive Health. Dr. Hirsch’s career in medicine includes many clinical leadership roles at healthcare organizations ranging from acute-care hospitals and home health agencies to long-term care facilities and group medical practices. In addition to serving as a medical director of case management and medical necessity reviewer throughout his career, Dr. Hirsch has delivered numerous peer lectures on case management best practices, and he is a published author on the topic. He is a member of the Advisory Board of the American Case Management Association and a Fellow of the American College of Physicians.


Contact the Author


Comment on this article

Share This Article